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Going viral: Inflation narratives and the macroeconomy

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  • Weinig, Max
  • Fritsche, Ulrich

Abstract

In recent years, there has been increasing interest in the analysis of narratives in macroeconomic research. Our paper contributes to this research by proposing a way to identify and extract economic narratives from media reports. Therefore, this paper applies state-of-the-art bag-of-words text analysis methods to a large news corpus covering five years of news coverage in combination with results from a survey study on recent inflation narratives (Andre et al., 2023) in the US. This approach enables us to measure the prevalence and spread of inflation narratives over time and to examine the role of these narratives in aggregate macroeconomic expectations. Using Granger causality tests and local projections, we provide empirical evidence on the dynamics between inflation narratives and inflation expectations. Moreover, the paper highlights the vast heterogeneity across shortterm and mid-term inflation expectations as well as socioeconomic groups.

Suggested Citation

  • Weinig, Max & Fritsche, Ulrich, 2024. "Going viral: Inflation narratives and the macroeconomy," WiSo-HH Working Paper Series 86, University of Hamburg, Faculty of Business, Economics and Social Sciences, WISO Research Laboratory.
    • Handle: RePEc:zbw:uhhwps:307613
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    References listed on IDEAS

    as
    1. Hodrick, Robert J & Prescott, Edward C, 1997. "Postwar U.S. Business Cycles: An Empirical Investigation," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 29(1), pages 1-16, February.
    2. Müller, Henrik & Schmidt, Tobias & Rieger, Jonas & Hufnagel, Lena Marie & Hornig, Nico, 2022. "A German inflation narrative. How the media frame price dynamics: Results from a RollingLDA analysis," DoCMA Working Papers 9, TU Dortmund University, Dortmund Center for Data-based Media Analysis (DoCMA).
    3. George William Evans, 2001. "Expectations in Macroeconomics Adaptive versus Eductive Learning," Revue économique, Presses de Sciences-Po, vol. 52(3), pages 573-582.
    4. Alistair Macaulay & Wenting Song, 2022. "Narrative-Driven Fluctuations in Sentiment: Evidence Linking Traditional and Social Media," Economics Series Working Papers 973, University of Oxford, Department of Economics.
    5. Gebhard Kirchgässner & Jürgen Wolters & Uwe Hassler, 2013. "Introduction to Modern Time Series Analysis," Springer Texts in Business and Economics, Springer, edition 2, number 978-3-642-33436-8, December.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    narratives; expectations; inflation; media; textual data; machine learning;
    All these keywords.

    JEL classification:

    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E71 - Macroeconomics and Monetary Economics - - Macro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on the Macro Economy

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